The best healthcare investments are companies whose underlying business models are, well, healthy. If you focus on the long term, it's a lot easier to do well in the market, too. Seek out healthcare stocks that are steadily growing revenue and earnings per share (EPS).
Humana (NYSE: HUM), Vertex Pharmaceuticals(NASDAQ: VRTX), and Idexx Laboratories(NASDAQ: IDXX) are three such companies -- and their shares are all up by 20% or more so far this year. More importantly, the reason the stocks are up is that the businesses are performing well.
All three recently released second-quarter results showing both revenue growth and EPS growth. Let's review.
Humana's performing better than expected
The share prices of health insurers took a hit earlier this year when Humana and UnitedHealth Group said this spring that they were seeing an uptick in seniors having non-essential surgeries that had been postponed due to the COVID-19 pandemic.
It turns out, though, that concerns about how that trend might impact their profits were overblown -- Humana is doing just fine. During its second-quarter earnings call, management said that the trend of rising numbers of knee and hip surgeries among Medicare Advantage customers has stabilized. The company reiterated that it expected 2023's medical loss ratio (that's the portion of premium income insurers pay out in the form of health care claims) to land between 86.3% and 87.3%, only slightly above 2022's ratio.
In the second quarter, Humana reported revenue of $26.8 billion, up 13% year over year, and EPS of $7.66, compared to $5.48 in the same period a year ago. It also raised its yearly EPS guidance to at least $26.91. Much of that growth is based on increased numbers of Medicare Advantage members, with the company saying it expects to have 18% growth over 2022 membership.
That growth is critical to Humana as it is the second-largest Medicare Advantage payer behind UnitedHealth Group, and it said in February that it planned to wind down its employer insurance business to focus on government programs.
Humana's greater focus on Medicare Advantage is likely to pay off, considering how the population of seniors in the U.S. is growing. Humana's revenue has risen for five consecutive years, and it has increased its EPS by 195% over the past decade.
Vertex is planning for a breakout
Thanks to its dominance in cystic fibrosis therapies, biotech company Vertex Pharmaceuticals has the financial strength to expand its portfolio into other areas, and it is doing just that these days.
The company said it expects full-year sales of between $9.7 billion and $9.8 billion from its cystic fibrosis products, compared to $8.75 billion in 2022. That growth has allowed the company to focus on three potentially profitable therapies in its pipeline: exa-cel, VX-548, and Vanzacaftor triple.
Exa-cel, which it is developing in partnership with CRISPR Therapeutics, has shown the potential to offer a functional cure for both sickle cell disease and transfusion-dependent beta-thalassemia -- rare blood disorders that previously had no cures. The Food and Drug Administration has accepted exa-cel's biologics license applications for treatment of sickle cell disease and transfusion-dependent beta-thalassemia -- and is expected to respond to the former in early December and the latter at the end of next March.
VX-548, a non-opioid pain reliever that works by inhibiting the channel expressed in primary pain-sensing neurons, is being studied in two phase 3 trials. The first one is testing its ability to relieve acute pain for patients who have had an abdominoplasty, commonly known as a tummy tuck, and the second is to relieve pain for patients who have undergone a bunionectomy. Vertex said it expects to share the results from both trials later this year or early next year.
Vanzacaftor triple is in two phase 3 trials to treat cystic fibrosis, and the company expects to finish the trials this year. The therapy is a cystic fibrosis transmembrane conductance regulator (CFTR) modulator designed to correct the malfunctioning protein made by the CFTR gene.
All of these therapies have the potential to be blockbusters, and in the meantime, Vertex is thriving. In the second quarter, which it reported on Aug. 1, the company had revenue of $2.49 billion, up 12% year over year, and EPS of $3.52, compared to $3.13 in the same period a year ago.
Idexx Laboratories isn't slowing down
Idexx makes and distributes products for the companion animal veterinary, livestock and poultry, dairy, and water testing industries. The company also does some laboratory diagnostics for humans.
Demand for its products is steady and somewhat recession resistant due to the increased number of pets in the U.S. and the growing demand for protein worldwide, which is increasing the need for livestock. As such, the stock is viewed as a safe haven play for investors.
Idexx has increased its yearly EPS by 405% over the past decade while improving its revenue every year. In the second quarter, it reported revenue of $944 million, up 10% year over year, with its Companion Animal Group showing 11% revenue growth and its Water Testing Group showing 10% growth. The one area that didn't grow was its Livestock, Poultry and Dairy Group, where revenue was flat year over year. The company also had EPS of $2.67 in the quarter, up 71% over the same period last year.
The strong quarter prompted management to upgrade its guidance. The company now expects 2023 revenue of between $3.66 billion and $3.715 billion, up 8.5% to 10%, and 2023 EPS of between $9.64 and $9.90, up 20% to 23%. The reason for the expected surge is that the company is expecting double-digit percentage growth in its Companion Animal Group diagnostic revenue.
10 stocks we like better than Humana
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Humana wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 1, 2023
Jim Halley has no positions in CRISPR Therapeutics. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Idexx Laboratories and UnitedHealth Group. The Motley Fool has a disclosure policy.
